Tuesday, September 20, 2016

Microeconomics vs. Macroeconomics

It's likely we will never effectively address gross income inequality and a sluggish economy by way of microeconomics.  Microeconomics is largely the study of human behavior and is better suited to the fields of marketing and finance.  We may learn something about why people do the things they do, but it will likely will not translate into how best to manage the economy.

Macroeconomics, on the other hand, if done properly, will set in motion a chain of events that each of us will act upon while not necessarily being aware of any economic consequence.  For example, lowering the median income tax rate ( a macroeconomic policy) will put more money into the hands of those who will likely spend it.  Greater overall spending will not be recognized as an economic stimulant by median income earners but will result in a favorable economic outcome.

Microeconomics looks at individual transactions while macroeconomics addresses system issues which influences economies from the top down.  If the concern is slow growth, high unemployment or inflation, macroeconomic policies must be considered.

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